Upward Mobility

A mobile payment strategy can pay dividends for community banks in terms of customer attraction and cross-selling. The key, experts say, is incorporating mobile payments deliberately, rather than just trying to keep up with the crowd.

By Mary Yerkes

Hold on to your hat. Mobile payment adoption is picking up speed, and it’s time for community banks to get in on the action.

According to First Annapolis Consulting, adoption of mobile payments is increasing steadily; 74 percent of consumer respondents to the 2016 Study of Mobile Banking and Payments reported having made at least one mobile payment in the past 12 months, up from 40 percent in May 2015.

The same study revealed 51 percent of respondents had a mobile wallet; yet, only 7 percent of users reported having a mobile wallet with their bank. What is staggering about this statistic is that 45 percent of respondents would prefer to work with their bank instead of a fintech company or other provider.

“Nonbank providers are cannibalizing our clients, and if we don’t start delivering competitive digital products, including mobile, that trend will continue,” says Tina Giorgio, ICBA Bancard president and CEO and a former community banker.

The 2017 FIS Consumer PACE Report said, “Providing up-to-date digital payment options, including mobile wallets and P2P options, is an absolute must for winning over younger consumers, especially young millennials, and the importance of these options [is] quickly rising with older consumers, as well. Not offering these options is an Achilles heel for community banks.”

With 57 percent of community bank customers over the age of 51, the greatest potential for growth focuses on reaching out to attract and retain high-income millennial and Generation X customers. Currently, these segments account for only 37 percent of the customer base at community banks.

If community banks hope to remain relevant and continue to grow, reaching this demographic is imperative, and delivering on their desires for mobile payments and services is the only way to draw younger customers away from bigger banks and fintech companies.

Developing a strategy
Forming a solid strategy that delivers can be easier said than done.

“One size doesn’t fit all,” cautions Giorgio. “While mobile and digital should be priorities, what you deliver and when you deliver is key to success. So much depends on your target segments and markets.”

Rather than rushing into mobile payments just because they feel under pressure to do so, community banks should consider how mobile payments fit into their overall growth and service plan and consider the full range of mobile payments: P2P, bill pay, POS pay and mobile account transfers, among others.

According to Richard K. Crone, a mobile payments strategist and the head of Crone Consulting, LLC, “The biggest mistake community banks make when developing a mobile payments strategy is not integrating it into their existing infrastructure.”

Crone says that the first step in any mobile payments strategy involves conducting a service interaction analysis. This provides objective measurements and top-use cases and touchpoints in every channel and function of the bank. The resulting data provide management and the board of directors with objective measurements to guide strategy and decision-making.

Jeff Casey, chief digital officer of First Financial Bank, N.A., a $6.93 billion-asset community bank in Abilene, Texas, felt strongly about gathering the right data and interpreting that data in light of the bank’s mobile payments strategy.

“We thought mobile was going to be very transformational, and not just as an extension of online banking channels,” says Casey. “We worked to identify what transactions we were seeing online and in the branch and which we could transfer over to mobile.”

Casey admits that the level of detail that went into the analysis and the effort it took to gather the data from disparate channels and analyze it in an apple-to-apple comparison structure were formidable challenges. For First Financial Bank, working with a consultant saved time and money in the long run.

“ICBA Bancard has agreements with consultants that banks can retain at a discounted cost,” points out Giorgio. “Also, most of the core processors who have digital services can provide support.”

Thomas P. Ormseth of Wintrust Financial, a community bank in the Chicago area with assets of approximately $26.9 billion, went a different route when creating its mobile strategy, choosing instead to develop the plan in-house, working closely with its customers and vendors.

“We continually meet and talk about where we need to be,” says Ormseth. “Currently, we have a three-year plan to stay competitive in the mobile space and to meet customers’ needs.

“[Because] we compete with larger banks, we don’t have the budget to go down five different roads to see what works with customers,” he points out. “We have to get it right the first time.”

“Nonbank providers are cannibalizing our clients, and if we don’t start delivering competitive digital products, including mobile, that trend will continue.”
—Tina Giorgio, ICBA

Wintrust staff members talked with the bank’s customers and tried to understand their thought processes regarding mobile. They also conducted customer surveys. Ormseth admits that getting it right also involved a little bit of intuition and close partnerships with the community bank’s vendors.

“It had to fit who we are as a community bank and make things easier and more efficient for our customers,” he says.

With such a massive investment of time and effort, what’s the return on investment? How can community banks turn a profit from mobile?

The bottom line is they can’t—at least not directly.

“You’re not going to make money off of mobile payments themselves,” says Giorgio. “It’s not an accepted practice to charge for mobile.” But you will experience cost savings in check-processing costs and costs associated with other channels, she says. “That’s a big value add.”

Cross-selling opportunities

According to a new PwC digital payments study, consumers who use self-service channels, such as mobile, report a greater need for a range of financial products. The study tracked behavior for those who primarily used online or mobile banking and those who used human channels, along with various combinations. Bottom line? Digital users tend to buy more financial services products.

The study also notes that customers who use mobile or digital services are less expensive to serve than clients who require direct support from bank staff. Digital customers generate higher customer lifetime value (CLV) for their financial institution.

While community banks may not profit directly from mobile payments, they will realize reduced costs, enhanced revenue potential and a broad customer base that includes high-income millennials and Generation Xers, which will ensure long-term growth and stability for years to come.


Mary Yerkes is a writer in Washington, D.C.

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